Special Report: Mexico's Cartels Will Continue to Erode in 2016

Mexican authorities have recaptured Sinaloa cartel leader Joaquin "El Chapo" Guzman Loera, and the media have had a field day, but, as with his escape, Mexico's cartel landscape remains pretty much unchanged. Fissures and infighting among drug cartels are redefining the drug trade — and the fight against it. As indicated in our 2015 Cartel Annual update, Stratfor categorizes Mexican organized criminal groups by the distinct geographic areas from which they emerged, and it is clear that the trajectories of Mexico's three regional organized crime umbrellas — Sinaloa state, Tamaulipas state and Tierra Caliente — are set.

Since the demise in the late 1980s of the Guadalajara cartel, which controlled drug trade routes into the United States through most of Mexico, Mexican cartels have been dividing into more geographically compact, regional crime networks. This trend, which we call "Balkanization," has continued for more than two decades and has affected all of the major crime groups in Mexico, including Los Zetas and the Sinaloa Federation, which until recently were the two most powerful cartels in Mexico. Indeed, the Sinaloa Federation lost significant assets when the organization run by Beltran Leyva split away from it and when Ignacio Coronel's death led to the emergence of several groups, including La Resistencia and the Cartel de Jalisco Nueva Generacion (CJNG). And Los Zetas itself is a product of Balkanization: It was formed when it split from the Gulf cartel in 2010. Though the Sinaloa Federation and Los Zetas have fought hard to resist fracturing even further, and have even been able to grow because of the phenomenon, they have not been able to stop the divisions altogether, and the trend will continue into 2017. In fact, no criminal group will be immune to downsizing and decentralization.

Tierra Caliente's Rise

Before 2012, Sinaloa- and Tamaulipas-based crime groups completely dominated Mexican organized crime, but since then this polarization has given way to the Balkanization of the cartel landscape. Still, until 2015, organized crime derived from the two main rival camps dominated drug-trafficking and other criminal pursuits. But this has changed with the rise of Tierra Caliente-based crime, particularly the CJNG, and has completely changed the security dynamic in Mexico, shifting the focus to the southwest. Mexico's security forces have responded by targeting their efforts on Guerrero, Jalisco and Michoacan states, but Tierra Caliente's reach stretches much farther. Most of the criminal turf wars across the country can be traced back to Tierra Caliente.

The CJNG has continued to expand its operations into areas historically controlled by Sinaloa- and Tamaulipas-based groups, including Tijuana, where control by the various groups associated with the Sinaloa cartel and the Arellano Felix Organization has all but broken down. CJNG has pushed to fill the void left in the city and to wrest control of it from Sinaloa-based crime bosses, contributing to an increase in 2015 of violence related to organized crime. There are also indications that CJNG now has operations in San Luis Potosi and Zacatecas states, where the Velazquez network and Los Zetas have fought each other for power since 2012. CJNG continues to fight against both Los Zetas and Gulf cartel factions in Veracruz, Tabasco and Guanajuato states.

The CJNG is particularly adept at leveraging the breakdown of other crime groups, and Mexico's security forces have taken notice. In 2015, Mexico City renewed its efforts to combat the criminal organization, but these efforts were initially stymied by the wave of unrest in Mexico's southern states spurred by a protesting teachers' union, rampant criminal violence and the September 2014 forced disappearances of students in Guerrero state. After Mexico's June elections, when the unrest began to settle, however, federal troops achieved notable successes by capturing high-level leaders of the CJNG, including Ivan Cazarin Molina, a lieutenant of CJNG top leader Nemesio "El Mencho" Oseguera Cervantes, and Ruben Oseguera Cervantes, El Mencho's son and an important lieutenant.

Despite the arrests, Mexico City still faces a challenging battle against CJNG in 2016. CJNG's expansion and territorial conflicts with other crime groups have not slowed since the start of 2016. Because of CJNG's cohesion and its particular affinity for coordinated attacks over a wide geographic area — a tactic shared by other Tierra Caliente groups — confrontations between federal troops and CJNG gunmen tend to escalate violently. In May, CJNG gunmen shot down an army helicopter during an operation to capture El Mencho in Jalisco state, killing six federal soldiers on board.

As with all organized crime networks facing persistent law enforcement pressure, the CJNG is bound to one day decentralize. Although the CJNG has so far been largely unmoved by Mexico City's campaign, the group will likely continue to face leadership losses in 2016, such as the Jan. 2 arrest of Elvis Gonzalez Valencia, a financial operator and brother of the now-detained top leader of the CJNG-aligned Los Cuinis, Abigael "El Cuini" Gonzalez Valencia.

The CJNG could continue to expand and remain a cohesive criminal organization throughout 2016, but at least some indicators of internal rivalries and other organizational splits should emerge by the end of 2016 if federal troops continue to successfully target the group's leadership. Nevertheless, the CJNG's expansion along the Gulf coast into Mexico's northwest will result in a lasting legacy, just as the geographic expansion of the Gulf cartel up until 2008 left territories for Los Zetas to inherit after it split from the group in 2010. So while we expect a decline in CJNG power in 2016, Tierra Caliente-based crime groups can be expected to collectively expand into 2017.

Sinaloa's Continual Decentralization

When Guzman escaped prison for the second time in July 2015, international attention on the Sinaloa cartel was certainly raised, placing considerable pressure on Mexican President Enrique Pena Nieto to recapture the crime boss and to clamp down on violence in the country. However, Guzman's escape was just one issue facing Mexico's security forces and was eclipsed by widespread unrest, including teacher protests in southern Mexico and by the expansion of CJNG outside of Jalisco and Michoacan states. The fact is, Guzman's sudden freedom had little effect on the continued breakdown of Sinaloa-based organized crime, and his recapture on Jan. 11 will likewise not alter the existing criminal trends in 2016.

In fact, before his recapture, organized crime-related violence in Sinaloa state suggested that internal conflicts were emerging within Sinaloa-based crime groups, including in Guzman's own criminal network. A firefight in December between rival gunmen in Badiraguato, Sinaloa state — the municipality where Guzman was raised — resulted in the deaths of eight people, one of whom was identified as a lieutenant for Guzman's brother, Aureliano Guzman Loera. Uncorroborated reports from Sinaloan media outlets say the conflict resulted from a familial dispute involving Guzman, though the information cannot be verified. Regardless, Guzman's freedom clearly has not slowed the internal divisions that continue to arise within Sinaloa-based organized crime.

Tamaulipas' Loss of Leadership

Los Zetas began 2015 with efforts to consolidate territory lost to the Velazquez network (also known as Los Talibanes) in several areas, including Zacatecas state. However, losses at the hands of Mexico's military and other law enforcement bodies have apparently triggered new organizational splits within Los Zetas, contributing to internal fighting in Veracruz, Tabasco and Oaxaca states that will likely persist into 2016. Although the exact breakdown of these divisions is murky, the violence is real, and the disunity makes it unlikely that Tamaulipas-based organized crime will expand into any areas not already dominated by its various associated groups.

Mexico City began its latest campaign against Tamaulipas-based organized crime in May 2014, taking out several leaders of Los Zetas and the other various Gulf cartel gangs based in the state. Mexican security forces successfully captured numerous Los Zetas leaders throughout the year, including top leader Omar "Z-42" Trevino Morales in March. While many of the group's crime bosses captured during the first half of 2015 were based out of northeast Mexico (such as Trevino), federal troops later shifted their focus to Los Zetas crime bosses based farther south, particularly in Veracruz and Tabasco. In November, authorities in Queretaro captured Alejandro "El Picoreta" Castro Alfonso, a Los Zetas regional crime boss overseeing Los Zetas operations in Veracruz, Oaxaca, Puebla, Chiapas, and Campeche states.

Federal troops have also continued to pressure Los Zetas' parent organization, the Gulf cartel, with arrests. In April, authorities in Cancun captured Juan Daniel "El Talibancillo" Velazquez Caballero, one of the top leaders of the widest operating Gulf cartel group, the Velazquez network, and brother of Velazquez network founder Ivan Velazquez Caballero. On Oct. 16, authorities captured Angel Eduardo "El Orejon" Prado Rodriguez in Matamoros, Tamaulipas state. Prado Rodriguez was the top leader of the dominant Gulf cartel group in Matamoros that suffered considerable losses from rival Gulf cartel groups aligned with the Velazquez network during the first half of 2015.

As expected, the fighting among competing Gulf cartel groups in Tamaulipas state has not resulted in significant consolidation of territory by one Gulf cartel group over the others. In fact, the efforts of the various groups in Tamaulipas diminished toward the end of 2015 as measured by violent conflict. However, the considerable number of leadership losses Los Zetas experienced throughout 2015 and the rumored organizational splits that have emerged within the group could fuel conflicts between Los Zetas and rival Gulf cartel gangs in 2016, as Los Zetas' rivals attempt to leverage emerging weaknesses.

As forecast in our second cartel quarterly update, the substantial number of Los Zetas leaders captured in the first quarter of 2015 did give rise to organizational splits in Los Zetas' southern area of operations, including in Veracruz and Oaxaca states, rather than in Nuevo Laredo, the area most often cited when talking about infighting in Los Zetas. The violence in these southern states indicates a likely internal conflict for control of Los Zetas' southern operations.

On Nov. 28 in Cosolapa, Oaxaca state, an area controlled by Los Zetas, authorities discovered the dead bodies of eight people accompanied by a message denouncing a Los Zetas crime boss operating in central Veracruz near the border with Puebla state. Unconfirmed reports from Mexican media outlets and social media accounts have speculated that the incident resulted from feuding Los Zetas crime bosses. Though the reason behind the Nov. 28 killings remains uncertain, Tabasco state's secretary of public security confirmed that opposing groups of Los Zetas were fighting in Tabasco and Veracruz states.

Precisely where the emerging divisions within Los Zetas lie is unknown, though some Los Zetas leaders, like Castro Alfonso, reportedly were involved in the dispute. But given that the conflict crosses state lines, the dispute will likely directly impact Jose Maria "El Charly" Guizar Valencia, a Los Zetas leader based in southern Mexico and a possible contender against Tamaulipas-based bosses for leadership of Los Zetas operations. We expect these power contests that emerged in the latter half of 2015 to expand geographically in 2016, possibly even escalating in northern Mexico should the broader conflict involve both Los Zetas based in Tamaulipas and Los Zetas based in and around Veracruz and Tabasco states.

As Los Zetas' leaders vie for control of the group, Gulf cartel groups based in southern Tamaulipas state and the Velazquez network could try to leverage the emerging divisions and any resulting loss of ability to defend territory in 2016. Should these divisions broaden to affect the Los Zetas organization as a whole, however, another significant reorganization of Tamaulipas-based crime can be expected in 2016. Such a reorganization, if it were to occur, would likely involve the realignment of some Los Zetas splinter groups with some of the various Gulf cartel groups, particularly the Velazquez network, given its more recent organizational ties to Los Zetas. An expansion of Tierra Caliente-based crime, particularly Cartel de Jalisco Nueva Generacion, into Los Zetas territory is more certain in 2016. Given CJNG's continued expansion and its existing foothold in Los Zetas territories, including Veracruz, Los Zetas will likely face more violent conflict with CJNG in 2016 in their long-standing strongholds.

From Drugs to Fuel

In 2016 organized crime-related violence will remain a significant issue, albeit somewhat less severe. At the same time, the continued expansion of fuel theft nationwide will be an increasingly pressing concern for Mexico City. In November 2015, Petroleos Mexicanos reported a 55 percent increase in the number of illegal taps on its pipelines between January and November 2015 compared to the same time period in 2014 (5,091 compared to 3,286). Roughly 27,000 barrels of gasoline and diesel were sold daily on the black market in 2015.

Beyond the economic cost, fuel theft presents Mexico with a host of security concerns. Theft often leads to corrupt officials, pipeline explosions and leaks, and, most significantly, violent conflict over territory. Recognizing the potential for huge profits through access to the pipelines, criminal groups frequently clash for control of this access.

Both Petroleos Mexicanos and Mexico City have taken a number of measures to stymie the rise of organized crime's involvement in the energy sector. Since 2014, Pemex has invested $229 million to improve its ability to monitor its extensive infrastructure and has slightly modified its own supply chains, including phasing out the transportation of finished gasoline through its pipelines to deter fuel theft. Meanwhile the Mexican government has increased its efforts to crack down on crime groups responsible for stealing and selling stolen fuel. Since May 2014, federal troops have pursued crime bosses regardless of their involvement in organized crime-related violence and regardless of their criminal affiliation throughout Tamaulipas state. (Tamaulipas-based groups are still the primary offenders in fuel theft.) Most recently, in December, Mexico's lower house approved changes to laws regarding the theft and sale of fuel, extending the possible prison sentence for fuel theft to up to 25 years.

But current efforts are unlikely to slow organized crime's expansion into fuel theft, at least through most of 2016, because there is still considerable incentive for further expansion. Additionally, combating organized crime's fuel theft activity is as challenging as combating organized crime as a whole. Nevertheless, Mexico City is being pressured to ramp up its efforts to reverse the trend. In 2016, Mexico City will likely further focus its federal troops on targeting crime bosses overseeing criminal activities in the energy sector, particularly those operating in Veracruz, Tabasco and Guanajuato states. However, budgetary constraints will limit its options.

Mexico City's Plan

Although Mexico's many transnational criminal organizations and powerful street gangs continued to wage violent conflict against one another in 2015, nationwide the number of homicides in 2015 was largely comparable to 2014. And homicides have dropped each year since 2012. In 2014, there were 29,828 homicides from January to November compared to 29,920 in 2015. The lack of a substantial rise in reported homicides is largely thanks to major criminal turf wars moving away from heavily populated urban locations. Moreover, although leading to more criminal groups, the continued Balkanization of Mexican organized crime has led to smaller groups with fewer resources and geographic reach that are less capable of sustaining high-profile violent acts in the face of pressure by federal troops. For example, in northern Tamaulipas, competition between Gulf cartel gangs in Rio Bravo and Matamoros led to a sharp increase in violence in the first quarter of 2015, though it abruptly dropped when federal troops focused on the warring crime groups.

As Mexican organized crime continues to decentralize, the nationwide conflicts between competing crime groups such as Los Zetas and the Sinaloa cartel will continue to fade as turf wars become more isolated in smaller geographic areas. In other words, apparent divisions and subsequent turf wars in areas such as northern Baja California and southern Baja California Sur states do not necessarily serve as indicators of escalating violence elsewhere. In Chihuahua state, for instance, there has been a substantial drop in homicides each year as turf wars have significantly diminished in former focal points of violence, including in Juarez. Violent turf wars between La Linea and the Sinaloa cartel in rural areas of western Chihuahua continue, but security has improved, and there has been a reduction in violence in places such as Juarez despite persistent competition between crime groups. Partly because of the decline in turf wars in urban areas, homicide figures for Chihuahua in 2015 were half what they were in 2012, with 1,184 homicides from January to November 2015 compared to 2,479 in 2012.

The decentralization of organized crime-related violence will likely continue in 2016. Even Los Zetas and the CJNG will inevitably face the same breakdown as all other major crime groups. Homicides in Mexico could begin to escalate in 2016 as internal conflicts within Los Zetas and its rivalries with other crime groups grow and as CJNG faces continued pressure from Mexico City. But such an uptick — if it occurred at all — would be unlikely to last.

Though the first half of Pena Nieto's administration is complete, the president still has not created a unified state police model to replace municipal police, a major part of his security strategy, the Mando Unico. Ultimately, the intent is to be able to implement a national security strategy over some 1,800 municipal law enforcement bodies and to help reduce the corruption that is often present among municipal police. However, not all states have adopted the model because of various logistical and political obstacles, and even in the few states that have implemented the strategy, not all municipalities are necessarily involved. One of the primary political obstacles is that the Mexican Constitution grants municipalities responsibility for security. As a result, the Pena Nieto administration attempted in 2015 to reform Article 115 of the constitution so that the state government would take over public security and the federal government would be able to bypass both state and municipal governments if a municipal government is found to be corrupt.

However, the push for constitutional reform quietly failed during 2015 because of lack of support in the legislative bodies. Though this effort could be revived in 2016, the chances of it passing are slim: The cooperation among Mexico's political parties that defined the beginning of Pena Nieto's term and that led to a number of important reforms has long since eroded.